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Tavis Smiley

News/Business. (2012) Author Nassim Nicholas Taleb. (CC) (Stereo)

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00:30:00

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TOPIC FREQUENCY

Us 8, Washington 5, Nassim Nicholas Taleb 3, U.s. 2, Nyu 1, Polytechnic 1, Tavis Smiley 1, Macneil Lehrer 1, Alan Greenspan 1, Obama 1, Kwame Holman 1, The Nation 1, Wole Soyinka 1, Smiley 1, Uk 1, Uk Or Europe 1, Italy 1, Receivership 1, Egypt 1, Pbs 1,
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  PBS    Tavis Smiley    News/Business.  (2012) Author  
   Nassim Nicholas Taleb. (CC) (Stereo)  

    December 4, 2012
    2:30 - 3:00pm PST  

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we have glad you have joined us. a conversation with nassim nicholas taleb coming up right now. >> there is a saying that dr. king had that said there is always the right time to do the right thing. i try to live my life every day by doing the right thing. we know that we are only halfway to completely eliminating hunger and we have work to do. walmart committed $2 billion to fighting hunger in the u.s. as we work together, we can stamp hunger out. >> and by contributions to your pbs station from viewers like you. thank you.
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tavis: he is a professor of risk engineering at nyu's polytechnic institute and author of two best-selling texts. his latest is called "antifragile." nassim nicholas taleb joins us tonight from washington. professor, good to have you back on this program. >> thank you for inviting me. tavis: i want to get into the book. let me start with the news of the day. everybody in washington is talking about the fiscal cliff. the so-called fiscal cliff. they're not talking to each other at the moment. that is what the conversation is going to get to, how do we avoid going over the so-called fiscal cliff? you suggested that the fiscal cliff might be good. i got a chance to go through your book. i understand, i think, why you might feel that way. the book argues that we need disorder to develop. we need disorder in our world to
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develop. we will come back to the book in a moment. based upon the motion -- that notion, why might the fiscal cliff be a good thing? >> we have been stuck for four years in a state of complacency. nobody wants to do anything about the accumulating problems. everybody knows about the problems. i think the civilization is masking deeper problems. if you let markets give you information, they will give the information. other than artificially prop up everything, like having the federal reserve control prices. this is not a long-term sustainable situation. what i think should happen is -- you would rather fail early than fail late.
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tavis: i'm trying to understand where the line is between things that happen to us that we cannot control so we have to deal with it versus folks in washington who do not want to have courage or conviction or commitment to anything. they do not want to compromise on anything. this is not something that happened to us. this is man-made, yes? >> the situation is not just a fiscal cliff. we are spending a lot more than we are earning as a nation. the nation is rich enough to try to live within its means. the problem is, of course, that people have been delaying -- at some point, you are going to have to find a solution. they keep delaying the solution. every time, we have a worse rescue.
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i would rather have things solved early than late. that is my situation. i would rather have the markets tell us -- i would rather have events precipitate events, rather than sit there like the people in washington. the core of my idea is that it is not just a fiscal cliff, we have had -- ever since alan greenspan came to run the federal reserve, we have had this artificial stimulation masking the problems, stabilizing markets. it is very harmful. a forest in which you stifle every fire, in the long run, you'll have flammable material accumulating. tavis: we go over the cliff and in the best of worlds, what happens?
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>> we will be forced to find a solution. people find a solution rather than politicians bickering. they do not have skin in the game. they're not representing us, they represent their own interests. take things to their conclusion, ok? tavis: if in the process, the american people get hurt, then what? >> the point is not -- the american people will eventually get hurt by the accumulating deficit. we have too much deficit. we have to find a solution. we are forced to find a workable solution. they do not seem to have the incentive. they patched things up and come back and another sustainable solution. the more general problem is that any system that is deprived of its volatility, the system becomes very fragile.
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just like the economy became fragile by micromanaging. >> let me use that to segue into the text. this book -- define for me "antifragile." >> what is the opposite of fragile? they tend to say robust, solid. the opposite of fragile is something that gains from disorder. i was an options trader for a long time, half of my life. i had a name for things that were harmed by volatility. i realized that you can map fragility as something that gains from volatility. things that gain from volatility, we have to have a name different from resilience. i call them "antifragile."
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people make mistakes shooting for robustness and stability, things that need -- you go to the gym. people work out. they stress their body and their body gets stronger from stress. it is the same thing with your bones. the same thing applies to economic life. anything organic requires some dose of variability. fixing things is not a good idea. we have departed from the enlightenment of this notion of vieing economic life as something again into thinking that it is more like an engineer. i collect the mistaking of your cat -- i call it mistaking your cat for a washing machine.
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if you are not -- you are not going to comment by continuously monitoring it. something organic -- it is self- healing. it has some properties. is the economy something organic or engineered? i think it is closer to the organic. you harm it by artificially suppressing volatility. tavis: does that mean that failing is a good thing? >> there are two kinds of systems. the systems that use failure as tools for improvements where the cost of failure is small. take the restaurant business. the reason you'll have a good meal tonight is because the failure rate of the restaurant business -- the system benefits from failure. failure stays alive. the airline industry, every time a plane crashes, the probability of the next crash is lowered by that.
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the titanic saved lives because we were building bigger ships. these people died, but we have improved the safety of the system and nothing failed in vain. on the other hand, you take structures that are artificial and not put together well -- the banking system. if a bank fails, the odds of the next bank failing is higher. you want failures to be small. silicon valley does very small. -- does very well. it knows how to use failure as a tool for improvement. fail fast. make sure you are in a situation where the cost of mistakes are small and can be used for something. tavis: you come out of a trial and error business. you are now an academic. does that mean that trial and error is better than academic knowledge? >> i look at history and a lot
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of things come from trial and error. after a long history -- someone writes a textbook and you make it theoretical and you have the illusion that technology comes from academic theory rather than trial and error. there is this mistake that we make. i call it lecturing birds how to fly. they make a lot of small mistakes and that is how we got here. that is how the uk got there. on the other hand, as countries get rich, they start increasing education. very educated people tend to not
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like trial and error. productivity drops and the rate of innovation drops. tavis: you mentioned the uk. how does this notion of "antifragile" apply in a place like egypt right now? >> the way i was complaining about egypt before the arab spring. when you suppress political life -- political life loves volatility. switzerland is a perfect place where you have volatility at the municipal level, but nothing of talk. the exact perfect on stable system is like saudi arabia or egypt. egypt before the arab spring, we had no information for 40 years. no information.
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a system artificially stabilized and you have hidden risks under the surface and you do not know what they are. that is what happened with the arab spring and now we are seeing things and it may turn into a total mess. the system is fragile last by depriving it from some rigid depriving it of political ofatility -- depriving it political volatility. tavis: doesn't always lead to greater strength? >> you want to -- does it always lead to greater strength? >> you want to favor the systems. unfortunately, the more the government becomes intrusive, the more things have to follow a script. it cannot handle this type of
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system. we are in a situation today where a lot of countries got there because of trial and error. it does not work that way. there are other problems involved, which is a moral hazard. in the past, people were harmed by their own mistakes. today, we're starting to see a wedge between those who benefit from a mistake and those who are harmed by it. bankers, for example, are not harmed by their mistakes. we have a lack of skin in the game. the world is not as stable as i would like to be. tavis: is that why you argue that bankers should not receive bonuses if they take federal funds? >> bonuses for bankers from allies is the system. someone has an upside -- on the
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other hand, they transfer the downside -- april 15, we pay for bankers' bonuses in directly. a lot of the problems we have today comes from that structure. the system became very fragile because some people had a vested interest in engaging in risky strategy known they were not going to be penalized by it. we need to modify it. we should have done something to eliminate the free option. in 2010, two years after the crisis, after we bailed them out -- citibank, for example, is almost near receivership. they pay themselves more bonuses than ever in history. we have moved from the capitalistic system of skin in the game, risktaker, you pay for your mistakes.
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to a system where you have a class of people who have no downside. they transfer the downside to society and have all the upside for themselves. it is becoming extremely pervasive for the system. tavis: i want to come back to the larger society. ity --otion of "antifragil you were one of the persons years before this collapse happened who predicted that this would happen if we stayed on this particular track. let me ask you whether you see anything today that suggests any lessons have been lent or are they as headstrong -- any lessons have been learned or they as headstrong as they were prior to the collapse? >> we are worse. before the crisis, the system with a lot of the fragility.
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moral hazard brings fragility. asymmetry brings fragility. we had that before the crisis, of course. we have a huge amount of debt bank mounting in the system. the problem has not been cured. we're transferring private debt into private debt. -- into public debt. we wasted five years, ok, before this crisis are giving and bickering and nobody -- they thatd sit down and realize they should represent us. tavis: let me come back to how this notion applies to our everyday lives. you argue in the book that if i
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spend my life working for one employer in this economy, and fragile. if i find myself in entrepreneurship and i have options and i can maneuver, i am "antifragile." >> i compared to two brothers. one is a taxi driver and his brother has the same income and works at a personnel department at a company. same age. the taxi driver has fluctuation, but every day, he'll learn something from it that makes them a just. if he does not have rides in some sector, it forces them to adapt. he is on top of his risk. he sees his risk, duration of his income, but nothing can be very severe.
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his brother, on the other hand, a very stable income all his life, working for the same employer. he is laid off at age 53. when you are at that age in an economy like the uk or europe, you are done. now you have to spend the rest of your life in a depression because you are not used to dealing with the real world. what happens is he was -- he did not have a stable income. the risks were hidden from him. the taxi driver or the freelance person or anyone who has a variable in, is vastly more protected from adversity it than someone who has a very steady income. when i compared it to lead to
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saudi arabia or egypt before the arab spring -- italy to sell the radio or egypt before the arab spring, it is good in the long run to mitigate the black swan risk. tavis: what might he have done differently? >> if you were self-employed, he would've had skills to fix the market. he had one employer dependent on bad employer, permitted his position and now he does not have any skills. he could have done differently if he had changed jobs or changed skills. it is overall like a system -- small corporations have more variations and they're forced to adapt a faster. tavis: if you are watching this
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program right now and you are listening to this example and you are closer to the 53-year- old scenario than you are to the taxi driver, what is the professor's advice to that person before they get to the point where they get laid off and they're 53 and cannot find a job right away? >> never think that lack of variability is stability. do not confuse lack of volatility with stability ever. tavis: y the think most of us do that? are we condition that way -- why do you think most of us do that? our reconditioned that way? >> and misunderstanding of risk. -- are we can week -- are we conditions that way. >> and misunderstanding of risk. it is not limited to career
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choices. anything that provides you with stable income and conditions may be generally stable, but often it masks real risks. the same thing applies to your body. you are a lot healthier -- one brother spent 10 years in bed and the other brother is out in the elements. who is going to be stronger? the one who spent 10 years in very comfortable situation, but he will be a lot weaker. comfort makes you weaker. tavis: i thought i heard you intimate that where business is concerned, there is a value in being a small business. small is better, more efficient.
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did i hear you correctly? >> i am applying it to everything. from political systems to projects. why do we have big government deficits? a project of $100 million may have cost overruns, 34 -- 30% more cost overruns than a $5 million project. big is a nice when things are right. a lot of hidden costs. but they think we did the same thing applies to political systems. -- the same thing applies to political systems. you have states, municipalities, localities. political diversity, some are from a year, some are different. this kind of diversity protect the system from a big blowup. a system that is monolithic is going to be weaker. it looks more stable, but it is
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weaker. tavis: how do we go about changing where our body politic is concerned, having people making decisions who do have skin and the game? -- in the game? if they do not have scan in the game, none of this ever changes. -- skin in the game, none of this ever changes. >> when they make a mistake, people are penalized by it socially. they go to church and people do not say hello to them, for example. bureaucrats in washington is not going to be harmed by a spreadsheet. this is one way to enforce skin in the game. another thing is -- i've been calling for four years. if you are going to bailout
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someone, i do not understand why they're not treated like civil servants. bailing them out, but they have the upside, but no downside. tavis: there is a wonderful quotation from the buck. -- book. "wind extinguishes a candle and -- you want to use them, not hide from them. you want to be the fire and wish for the wind." that is from the new book "antifragile." best-selling author nassim nicholas taleb. always a delight to talk to you, sir. thank you for watching. as always, keep the faith.
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>> for more information on today's show, visit tavis smiley at pbs.org. tavis: hi, i'm tavis smiley. join me next time the conversation with wole soyinka. >> there is a saying that dr. king had that said there is always the right time to do the right thing. i try to live my life every day by doing the right thing. we know that we are only halfway to completely eliminating hunger and we have work to do. walmart committed $2 billion to fighting hunger in the u.s. as we work together, we can stamp hunger out. >> and by contributions to your pbs station from viewers like you. thank you.
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>> be more. pbs.
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captioning sponsored by macneil/lehrer productions >> ifill: president obama said today there would be no deal to avert an economic plunge unless republicans agree to increase taxes on the wealthiest americans. good evening. i'm gwen ifill. >> woodruff: and i'm judy woodruff. on the newshour tonight, kwame holman has the latest on wast